As part of its effort to deal with the threat of open-source software, Microsoft plans to let device makers modify more of the source code of its specialized Windows CE operating system. But some say the company's licensing terms could kill interest in the plan.

In a highly touted announcement late Wednesday, Microsoft expanded its existing "shared source" program for Windows CE, its OS for "embedded" devices, which include everything from personal digital assistants to cell phones to sewing machines. Microsoft played up giving manufacturers access to the operating system's source code--or blueprint--and an opportunity to modify it.

But analysts placed less significance on the changes than did Microsoft.

"Manufacturers already had access to the source code and could modify it," said Paul DeGroot of market researcher Directions on Microsoft. "There's absolutely nothing new about that."

But Scott Horn, marketing director for Microsoft's embedded device division, disagreed, saying that under an earlier program the source code available to embedded developers and manufacturers "was not all of Windows CE." The newer program "enables our partners pretty much all the source code we can provide to them."

DeGroot also faulted the licensing terms governing the source-code changes, calling them a "deal breaker" for most manufacturers. Under the terms, manufacturers could be compelled to license some changes back to Microsoft, which would get them without paying royalties. Such a situation could amount to the software maker potentially receiving free research and development at the hands of other companies, DeGroot said.

The program is another attempt by Microsoft to make one of its operating systems more competitive with open-source software such as Linux. Changes to the software core, or kernel, of Linux are governed by the GNU General Public License (GPL), as are the kernels of various other open-source programs. Under the GPL, changes to the Linux kernel must also be governed by the license. The GPL dictates that if a company alters the kernel, it must publish the changes and can't keep them proprietary if it plans to distribute the code externally.

This approach has appealed to companies looking for more control over their own software development, or the ability to quickly make modifications instead of waiting for a commercial developer such as Microsoft to release a new version of the software.

Microsoft's response is its shared-source program, which gives developers, governments and educational institutions access to Windows XP and Windows CE source code. The company has a total of 12 shared source programs, said Craig Mundie, Microsoft's chief technical officer for Advanced Strategies and Policy.

Under the old Windows CE program, developers could access and modify the source code and directly ship a device with those modifications. Under the revision, which Microsoft calls the Windows CE Shared Source Premium License Program, manufacturers would have full access to the operating system source code and be able to make modifications. But unlike open-source development, where modifications to code that's intended for outside distribution must be freely published, some changes would either belong to Microsoft or be licensed back to the company.

Microsoft categorizes the terms two ways: modifications made to improve Windows CE, and changes made to differentiate a manufacturer's products from those of competitors. The manufacturer can choose either license when making what Horn described as limited changes to the source code.

When the manufacturer makes changes for differentiating products, it has a six-month period to exclusively market devices with versions of Windows CE exhibiting these changes. After the period ends, Microsoft gains a royalty-free license to the technology, which allows any other developer to use them. Hitachi has already participated in this aspect of the program. The company developed changes to the user interface. Ideally, the original developer will be able to differentiate itself from the competition by half a year.

"It's as if the manufacturers were doing work for hire for Microsoft and they didn't get paid. But it's different because they paid for doing the work," said Kay, referring to the fact that manufacturers pay a royalty for modified code the same as nonmodified code.

By contrast, the rights to what Microsoft calls "platform modifications" get transferred to the company. Typically, platform modifications are things such as bug fixes or code optimizations, Horn said.

DeGroot faulted both sets of terms. "This highlights Microsoft's problem with shared source," he said. As the world's leading commercial software company, Microsoft should set a better example. "They should either pay a licensing royalty or pay them for their development work," he said.

Whether a source code change is a company improvement or a platform modification is subject to negotiation. The developer gets to make the original designation. Even though Microsoft may disagree, the ultimate characterization of any changes is agreed to by both sides before the change is incorporated.

"The partner signing it can decide which is which," Microsoft's Horn said. It's their (intellectual property); they own it. They get to decide how it's applied."

But IDC's Kay questioned how much power many smaller developers would have determining the type of modification. "It's like the devil's agreement," he said.

Another limitation stipulates who gets to distribute any changes to the source code. Silicon vendors, system integrators and embedded device manufacturers all will be given access to the Windows CE source. But only the device manufacturers will be able to distribute changed code, and even then only on products using the software.

Mundie said "this was the first time" Microsoft allowed manufacturers to commercially distribute "derivative works for one of our operating systems products."

During a conference call with the media Wednesday, Mundie lashed out at the GPL's use "in embedded systems." Mundie charged that, interpreted one way, the GPL could be applied to the application running on top of the operating system, forcing developers to publish the code and thus resulting "in the loss of their intellectual property." With Windows CE's "commercial license there is no such risk."

While DeGroot saw more limited appeal to the announcement than Microsoft's positioning, he did see benefit for some customers, particularly those looking to further differentiate their products. He noted that in many categories, manufacturers releasing Windows CE products have been stuck in a crowded market where all the devices are very similar.

Microsoft has looked at the landscape and seen some customers going to other embedded OSes, partly because they have more flexibility," DeGroot said. "It's probably past due for Microsoft, because the Windows CE market has been stalled a little by (manufacturers') inability to differentiate their products from one another."

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